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Why RCom’s NCLT Move Is Good News For Jio

Reliance Communication’s (RCom) latest move to shift its debt resolution plan to NCLT could make it easier and cheaper for Mukesh Ambani led Reliance Jio to take over the assets of the Anil Ambani-owned telecom company.

At the heart of Reliance Communication’s new move is the company’s ‘priced’ spectrum and fiber optics cable network that Reliance Industries (RIL) promoted telecom company RJio has set its eye on. Rcom has decided to move NCLT after unsuccessful attempts in securing Department of Telecommunication’s (DoT) not to sell its assets to RJio. But the move by the debt-laden company of Anil D Ambani may end up benefiting his elder brother controlled telecom venture.

RJio, which had a definitive agreement to buy Rcom spectrum, may make all possible attempts to acquire the company’s assets at the substantially marked-down price either via presenting a debt resolution plan or in case if the company went into liquidation and auction, experts in telecom and insolvency told.

DoT has pending spectrum dues of around Rs 2950 crore receivable from Rcom and it had sought a bank guarantee from the company against these dues before allowing it to sell its assets to RJio. But the promise of any such bank guarantee was sure to attract even other lenders and operational creditors or could have even put the burden of entire debt on RJio. Now under the new insolvency and bankruptcy code (IBC), the bidder of assets of the company, which has filed for bankruptcy, has to first present a resolution plan that mainly involves huge hair-cut for all the lenders. If the resolution plan is not accepted the company goes into liquidation, which has the potential to lower the value of the assets further as it may take years before all assets are liquidated.

For instance, RIL in consortium with financier JM Financial managed to buy out Alok Industries by bidding just Rs 5550 crore via the IBC process. Lenders to Alok Industries, which had a debt of Rs 29,500 crore, took an 83 percent haircut. IBC has hastened debt recovery but it has also abetted moneybags to ‘buy value assets dirt cheap’ in case of lack of many suitors for the asset. RIL was the only bidder for assets of Alok Industries and the valuation report in case if the company going into liquidation too was lower RIL’s resolution plan.

Also, IBC matters have to be completed within 270 days unless lenders drag them to National Company Law Tribunal (NCLT) and courts. Creditors fear that failing to accept debt restructuring proposals may push the company towards liquidation, which could take years and lead to further mark-down of asset prices. Also, secured creditors, including banks, are placed third in preference order to receive the proceeds of liquidation, after meeting the cost of resolution and worker dues.

Before Rcom moved for IBC it was expecting to receive between Rs 15,000 to Rs 25,000 crore for its spectrum and other assets.

Compared to asset acquisition of an operating company in the normal course, in some cases, it is appropriate to adopt a resolution under IBC. It may fetch best asset price for lenders under a transparent mechanism. But cases, the where the corporate debtor has only a specific set of assets in the industry, attracting the best price from suitors, may be challenging. In case, there is not enough interest from acquirers, lenders may have to take large haircuts or go for liquidation. But an overall end to the whole saga can be swift and without red-tape if the corporate debtor is in a regulated business,” said Nitin Jain, Managing Partner, Agama Law Associates.

RJio sole interested party in Rcom spectrum

For RJio the deal with RCom is crucial on account of the spectrum. RJio had entered into definitive agreement with Rcom to buy its 122.4 MHz of spectrum in the 800, 900, 1800 and 2100 MHz bands, 43,000 towers, 1.78-lakh route km of optical fiber cable network and 248 Media Convergence Nodes. These assets together can contribute significantly to the large-scale roll-out of RJio’s wireless, fiber-to-home and enterprise services.

RCom most coveted 800MHz band is most valuable for RJio as other telecom operators do not have existing radio frequency in this band.

Bharti Airtel and Vodafone Idea is may not be interested in Rcom’s assets given that they are rolling out 4G mostly on other spectrum bands.―The Hindu Business Line

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